Ares Commercial Real Estate (NYSE: ACRE) and Ellington Residential Mortgage REIT (NYSE:EARN) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their valuation, risk, analyst recommendations, earnings, dividends, profitability and institutional ownership.

Profitability

This table compares Ares Commercial Real Estate and Ellington Residential Mortgage REIT’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ares Commercial Real Estate 33.69% 7.76% 2.16%
Ellington Residential Mortgage REIT 40.44% 12.02% 1.17%

Analyst Recommendations

This is a breakdown of recent ratings for Ares Commercial Real Estate and Ellington Residential Mortgage REIT, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Commercial Real Estate 0 2 2 0 2.50
Ellington Residential Mortgage REIT 0 2 0 0 2.00

Ares Commercial Real Estate currently has a consensus price target of $14.17, indicating a potential upside of 7.32%. Ellington Residential Mortgage REIT has a consensus price target of $14.00, indicating a potential upside of 20.59%. Given Ellington Residential Mortgage REIT’s higher possible upside, analysts clearly believe Ellington Residential Mortgage REIT is more favorable than Ares Commercial Real Estate.

Institutional & Insider Ownership

63.3% of Ares Commercial Real Estate shares are owned by institutional investors. Comparatively, 66.7% of Ellington Residential Mortgage REIT shares are owned by institutional investors. 1.8% of Ares Commercial Real Estate shares are owned by insiders. Comparatively, 2.7% of Ellington Residential Mortgage REIT shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Risk & Volatility

Ares Commercial Real Estate has a beta of 0.69, meaning that its share price is 31% less volatile than the S&P 500. Comparatively, Ellington Residential Mortgage REIT has a beta of 0.59, meaning that its share price is 41% less volatile than the S&P 500.

Valuation & Earnings

This table compares Ares Commercial Real Estate and Ellington Residential Mortgage REIT’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Ares Commercial Real Estate $81.96 million 4.60 $40.33 million $1.14 11.58
Ellington Residential Mortgage REIT $24.22 million 6.39 $11.90 million $1.07 10.85

Ares Commercial Real Estate has higher revenue and earnings than Ellington Residential Mortgage REIT. Ellington Residential Mortgage REIT is trading at a lower price-to-earnings ratio than Ares Commercial Real Estate, indicating that it is currently the more affordable of the two stocks.

Dividends

Ares Commercial Real Estate pays an annual dividend of $1.08 per share and has a dividend yield of 8.2%. Ellington Residential Mortgage REIT pays an annual dividend of $1.48 per share and has a dividend yield of 12.7%. Ares Commercial Real Estate pays out 94.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ellington Residential Mortgage REIT pays out 138.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ellington Residential Mortgage REIT has raised its dividend for 2 consecutive years. Ellington Residential Mortgage REIT is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Ares Commercial Real Estate beats Ellington Residential Mortgage REIT on 9 of the 17 factors compared between the two stocks.

Ares Commercial Real Estate Company Profile

Ares Commercial Real Estate Corporation is a specialty finance company. The Company is primarily engaged in originating and investing in commercial real estate (CRE) loans and related investments. The Company operates through principal lending segment. Its target investments include senior mortgage loans, subordinated debt, preferred equity, mezzanine loans and other CRE investment opportunities, including commercial mortgage-backed securities. These investments are generally held for investment and are secured, directly or indirectly, by office, multifamily, retail, industrial, lodging, senior-living, self-storage and other commercial real estate properties, or by ownership interests therein. Through the Company’s manager, Ares Commercial Real Estate Management LLC, it has investment professionals located across the United States and Europe who directly source loan opportunities for the Company with owners, operators and sponsors of CRE properties.

Ellington Residential Mortgage REIT Company Profile

Ellington Residential Mortgage REIT is a real estate investment trust. The Company conducts its business through its subsidiaries, EARN OP GP LLC and Ellington Residential Mortgage LP (the Operating Partnership). It specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. It constructs and managing a portfolio consisting of residential mortgage-backed securities (RMBS) for which the principal and interest payments are guaranteed by the United States Government agency or the United States Government-sponsored entity (Agency RMBS) and, to a lesser extent, RMBS backed by prime jumbo, Alternative A-paper manufactured housing, and subprime residential mortgage loans (non-Agency RMBS). Its Agency RMBS include residential mortgage pass-through certificates, collateralized mortgage obligations (CMOs) and to-be-announced mortgage pass-through certificates (TBAs). Its non-agency RMBS include investment grade and non-investment grade classes.

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